Tuesday, 25 January 2011

Shock, Horror ... the economy is contracting

For all the shock/horror expressed by mainstream economists and pundits, such news comes as no surprise to the online blogger community (or most people in the street)! 

Mainstream economists were predicting GDP was going to RISE by between 0.2-0.6% (due in part to the poor weather in December), but the Office for National Statistics figures show that the economy actually CONTRACTED by 0.5% (and was at best flat, after stripping out the impact of the poor weather)!  Hence their complete shock at seeing the figures!

The economy is clearly 'heading south' and the fiscal tightening has hardly even begun (e.g. public sector cuts, VAT hike)! In fact many bloggers (including myself) have for some time been saying that the real economy has never actually recovered ... as all the measures introduced (e.g. bank bailouts, quantitative easing, near-zero interest rates), combined with excessive amounts of spin, served only to postpone the reality check ... and at great expense unfortunately too (e.g. the creation of a collossal public debt, the significant devaluation of the pound, rising commodity prices and imported inflation).

The Government saw the financial crisis as a green light to bring in swinging public sector cuts, and to introduce massive (and regressive) tax rises (e.g. VAT hike) for the vast majority of people (nb but not for the ultra-rich - who are quietly being given more opportunities to avoid tax altogether).  

The truth is, as in business, in the long run you cannot 'cut your way to success', and one needs to have a robust plan for creating sustainable growth and prosperity for all, by 'leading' in innovation and the adoption of best practice (a point emphasised from the outset in my book - "Lean World: The DNA of Success and the Path to Prosperity"). 'Leaders' have failed to do this in business, and political leaders have failed to do this in Government too ... and we're now suffering as a result (nb future generations will suffer too).

Sir Richard Lambert, outgoing Director General of the CBI, yesterday chose to attack the Coalition Government for its lack of vision, and a lack of a growth strategy to compliment its hardline plan to cut public expenditure.  Whilst this is true, I have to say there is a certain amount of hypocrisy in Sir Richard Lambert saying this (and particularly on leaving office) as whilst in post for 5 years he did very little (i.e. nothing) to help/support business adopt best practice and to put its own house in order, but he did a great deal to lobby Government on behalf of banks during the banking crisis, as the CBI proved itself to be the "Voice of Banks" rather than the "Voice of Business" - which the Government did not seem to realise at the time (NB the CBI is a predominantly a lobby group paid for by business in proportion to their size - and most of the largest UK companies are banks)! 

Smaller businesses are still not getting loans, despite the bailouts given to the banks, and 2 years on the government is still trying to press them hard to do this (and it appears they are failing).  Double dip - here we come - unless we see drastic change from our 'leaders' now ... and not just in the spin that's used!*

* NB The current 'leaders' have pressed home the need for drastic cuts for the last six months, which has not surprisingly raised concern about the security of people's jobs. The current spin (i.e. about the dip being mainly a result of 'the weather', and not the fundamentals in our economy) is IMHO a desperate attempt to stop consumer confidence falling even more ... and to stop the economy going into free-fall ... but will it work, and if it does, how long will it last?  Time is running out to do anything ... and all this does is buy a little more time (with even worse consequences further down the line if nothing is done)!